GAIL, Oil India Eye Stake in Reliance Gas

New Delhi – GAIL (India) Ltd. and Oil India Ltd. are keen to buy stakes in a gas transportation company owned by Indian billionaire Mukesh Ambani, executives at the two state-run companies said.

The plans to buy into unlisted Reliance Gas Transportation Infrastructure Ltd. represent a bet on the long-term demand potential for natural gas in Asia’s third-biggest economy.

Their interest comes at a time when Reliance Industries Ltd., controlled by Mr. Ambani, is struggling with sharply declining gas production at its majority-owned D6 block, in the Krishna Godavari basin, off India’s east coast.

The block is owned 60% by RIL, 30% by U.K.-based BP PLC and 10% by Canada’s Niko Resources.

Reliance Gas owns the East-West gas pipeline which carries gas about 1,400 kilometers from the eastern offshore D6 block to Gujarat in the west. The company also plans to lay pipelines to transfer gas from Kakinada, on the country’s east coast, to the southern state of Tamil Nadu and the eastern state of West Bengal.

RIL recently cut the proven reserve estimates for D6. Moody’s said Monday that the revision will reduce total cash flows from the project by about $1.7 billion.

A sale of part of the company could have implications for RIL’s joint venture with BP, which aims to develop and market Indian gas reserves.

In November, RIL said the joint venture will develop infrastructure to speed up transportation and marketing of gas.

“Our due diligence is on,” a spokeswoman for GAIL India, who declined to be named, said. “We are in the process of expanding our network and this is a good fit.”

GAIL is India’s largest pipeline utility by capacity, with a network of 8,500 kilometers. It plans to grow this to more than 14,000 kilometers by March 2014 to keep pace with growing demand for gas in India.

India’s gas demand is estimated to grow 40% from current levels to 356.16 mmscm/d by March 2015, Oil Minister Jaipal Reddy said recently.

A senior executive at state-run fuel retailer and explorer Oil India said his company has expressed interest in buying a stake in Reliance Gas.

The executives didn’t give any details on valuations or on how large a stake they wanted to buy.

A spokesman for Mumbai-based RIL declined to comment on the plan. Calls to the Reliance Gas office in Mumbai weren’t unanswered.

The Economic Times newspaper Friday said Reliance Gas is valued at 100 billion rupees ($1.86 billion).

The D6 block produced 42 mmscm/d in the fiscal year ended March 31, far below a target of 70 mmscm/d. Output will likely decline to 20 mmscm/d by March 2015, Mr. Reddy said earlier.

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